In October 2001, lawyers for the city of San Diego and private developer Roque de la Fuente II stood before a judge in a high-stakes hearing over a $94.5 million jury award levied against the city earlier that year.

This is getting expensive

In 2001, the city of San Diego lost a lawsuit to developer Roque de la Fuente II. A judge set damages at $91.5 million.

Four years later, the city's appealis no closer to being resolved. The interest averages $385,000 a month.

Even if the case ended today, the city would owe about $110 million, plus legal fees.

The city's lawyers asked the judge to throw out the verdict, the result of a case in which de la Fuente contended the city broke its deal with him and drove down the value of a 312-acre business park his family owned and developed on Otay Mesa.

It was not to be. Orange County Superior Court Judge Raymond Ikola lopped off about one-third of the total, but added nearly as much in interest, leaving the city staring at a $91.5 million payout.

And in the past four years – while the city's financial crisis and political turmoil have dominated the news – the potential bill has grown significantly.

Under state law, interest is tacked on to any monetary award while it is being appealed.

Ikola awarded de la Fuente 7 percent interest from the time of the damages – starting as early as 1993 – through the 2001 judgment. He also awarded variable interest on the total judgment, compounded semiannually at a rate established by the state controller's office.

"It will require careful calculation, but I expect the average interest rate to fall between 5 and 6 percent," said David B. Casselman, one of de la Fuente's trial lawyers.

"That is a market rate, and the amount owed by the city grows even more each year because the principal to which the interest is added increases each year."

"We estimate that the total figure is now approaching $110 million."

That works out to about $18.5 million – or an average of $385,000 per month – in interest payments. Legal fees and other costs will raise the city's total tab even higher.

The situation has drastic implications for the city and its wobbly fiscal position. An appellate ruling upholding all or even a substantial portion of the judgment could send the city reeling and be the catalyst that sends the city into bankruptcy.

The day after he was elected last year, City Attorney Michael Aguirre said resolving the case was a top priority and likened the verdict to a "burning fuse" that could detonate the city's shaky financial structure.

But during the mayoral campaign between Councilwoman Donna Frye and former Police Chief Jerry Sanders, the verdict and its potential ramifications have hardly been mentioned.

"Curiously enough, it's something that has never come up in a debate or forum," Frye said.

About the series

This is the 10th article in a series examining San Diego's finances and decision-making.
Previous installments examining San Diego's finances and decision-making.

July 17: Fairbanks Ranch Country Club's 'sweetheart' lease with the city.

Aug. 28: The gap between what residents want and what they'll pay for.

The two candidates have sparred over their plans for dealing with the city's litany of fiscal problems – a $1.4 billion pension deficit, plummeting credit ratings, tighter city budgets with reductions in basic services and an ever-growing list of unmet needs.

Frye said she accounts for the verdict when she says the city is facing a fiscal crisis of about $4 billion.

"It's been factored in but not broken out specifically," she said. "It's not just the pension – I've tried to make a point of that. There are other issues the city is facing that we have to deal with, and this is one of them."

A spokesman for the Sanders campaign said the verdict has not been an issue in the campaign and did not comment further.

The lawsuit centered on de la Fuente's Border Business Park in Otay Mesa. A jury found – in a unanimous verdict – that the city broke the terms of a 1986 development agreement for the park and took a series of actions that systematically devalued the property.

The city has long argued that it did nothing wrong and de la Fuente was a victim of the real estate recession of the early 1990s. That argument did not persuade jurors, however, some of whom said they believed the city was surreptitiously trying to drive de la Fuente from his land so San Diego could reacquire it.

After the trial, the city hired two law firms to handle the appeal and spent upward of $8 million on legal fees. Attempts to reach a settlement have been fruitless, and not surprisingly, both sides differ on why that is so.

"We can't get any consistency out of the city," said Vincent Bartolotta Jr., de la Fuente's other trial lawyer.

The settlement talks are complicated because de la Fuente has two other suits against the city, both of which contain allegations similar to those in the Border Business Park suit. Bartolotta said the city wants to resolve all three, even though the other two have not gone to trial.

He said his side has offered to settle the case with small payouts over as many as 30 years to ease the financial hit on the city, but the offer was not accepted.

But Don McGrath, an executive assistant city attorney in charge of the case, disputed Bartolotta's assessment that the city was inconsistent. He said the City Council supports settling all three suits – known as a global settlement – and not to do so would be wrong.

"We don't want to settle piecemeal with Roque de la Fuente," he said. "And they don't want to settle globally."

Three veteran judges have tried to bring about a settlement in confidential talks over the past two years. Justice Richard Huffman of the 4th District Court of Appeals in San Diego tried and failed, and then the case was transferred to the appeals court in Riverside in 2004.

There, Justice James Ward tried to work out a settlement but gave up in August. Since then, retired federal Judge Lawrence Irving, one of the most respected mediators, volunteered to try to broker a settlement, but also fell short, McGrath said.

All of this has led both sides to await a date for arguments in front of the Riverside appeals panel. No date has been set, but Bartolotta said one could come before the end of the year.

While there is disagreement about the talks, both sides agree that the stakes are high for a city in a more precarious financial position than it was nearly five years ago when the original verdict was issued.

"I think the city's approach to this case borders on the criminal," Bartolotta said. He added he was flabbergasted that the city would not have resolved the case when facing "a risk this big and with the amount of interest that is accruing monthly, when there has been such reasonable offers made to resolve the case."

McGrath defended the city's approach, noting that both the council and Aguirre have made resolving the case a priority. The city has offered a monetary settlement as well as land, and he noted that any settlement could be paid out over a number of years.

While the mounting interest is an eye-catching number, McGrath said that the court could rule that the city does not have to pay all of it or require a partial payment.

And while he said he believes the city has a strong case on appeal, the specter of a ruling that requires the city to pay a huge portion of the now $100 million-plus judgment is daunting.